Issue 03/2011April/May 2011CharitiesAlertInside this issueSector newsConsultation on Local Authority guidanceUpdated guidance for international charitiesCIO guidance and constitution releasedCompliance Toolkit - Protecting charitiesfrom harmGuidance on Bribery Act releasedTax and VATImproving HMRC guidanceHMRC Business Records ChecksEmployment tax - hot topicsVAT- charity buildings and the change of useprovisionsScotlandSCIO guidance releasedForthcoming eventsCFDG Annual ConferenceISBA Annual ConferenceThe Future of Financial Reporting and thePublic Benefit Entity Standard seminar
Charities Alert Issue 03/2011Guidance has recently been published bythe Ministry of Justice to help organisationsto understand what sorts of procedures theycan put in place to prevent bribery.Sector newsConsultation onLocal AuthorityguidanceIn April the Department for Communitiesand Local Government launched aconsultation on its new ‘Best Value’guidance for Local Authorities.The release of the draft guidance followsthe suggestion by Eric Pickles, thedepartment’s Secretary for State, that ifcouncils “are being high-handed”, thenconsideration would be given to giving“statutory force” to the expectationthat charities would be treated fairlyregarding cuts in funding.The requirements include:not passing on disproportionatecutsgiving three months’ notice forany funding cut that will materiallythreaten the viability of anorganisationactively engaging as early aspossible on the future of theservice, including an assessment ofany knock-on effect on assets usedto provide the service. This includesthe wider impact both on serviceusers and the local community.Updated guidancefor internationalcharitiesThe Charity Commission has recentlyre-launched its guidance for charitiesthat work internationally. The guidancehas been reformatted, with ‘sign post’headings such as ‘Registering aninternational charity or overseas disasterappeal’, ‘Money and property matters’and ‘Protecting staff and beneficiariesand managing risk’ which lead on tomore detailed guidance. The usualsingle PDF document continues to beavailable.CIO guidanceand constitutionreleasedIt seems that the wait for the CharitableIncorporated Organisation (CIO) tobecome available as an alternative legalform for charities in England and Walesmay soon be over. Recognising this,the Charity Commission has recentlypublished guidance on setting up a CIOas well as two model constitutions.However, as the regulationsunderpinning CIOs have not yet beendebated by Parliament, the guidancemay well change in the future.ComplianceToolkit - Protectingcharities fromharmThe Charity Commission has alsoreleased the third chapter of its‘Compliance Toolkit’ titled ‘Fraud andFinancial Crime’.The guidance aims to help trustees andcharity managers to ‘be aware of therisks, to recognise some of the mostcommon fraudulent activity and deviseways to prevent fraud occurring’.The guidance is split into two sections.The first is a short summary, whichis complemented by a more detaileddocument. Issues covered includetrustees’ responsibilities in relation tofraud and there is a ‘Top Ten Tips forTrustees’ section, which includes basickey controls such as not signing blankcheques!The previous two chapters ‘Charitiesand terrorism’ and ‘Due diligence,monitoring and verification of the enduse of funds’ can also be downloadedfrom the Commission’s website.There has been some criticism of thetiming of the guidance, as this will notreverse past funding decisions and sowill not help the many charities thathave already been impacted by cuts. Ithas also been suggested that althoughnon-compliance with the guidancecould form the basis for a judicial reviewof a Local Authority’s funding decision,this may well be too costly for manycharities.The consultation period ends on14 June 2011.Guidance on Bribery Act releasedThere has been much concern inthe sector, particularly amongstorganisations operating in certaincountries overseas, about the possibleimpact of the Bribery Act 2010, whichcomes into force from 1 July this year.The Act creates a new offence thatcan be committed by commercialorganisations (which includes charitiesand their trading companies) if they ‘failto prevent persons associated with themfrom bribing another person on theirbehalf’. If an organisation can prove thatit has ‘adequate procedures in place toprevent persons associated with it frombribing’, it will have a defence shouldsuch an accusation be made.Guidance has recently been publishedby the Ministry of Justice to helporganisations to understand whatsorts of procedures they can put inplace to prevent bribery. The guidanceoutlines six key principles (includingproportionality, top level commitmentand communication) to help determinewhat, if anything, organisations need todo to protect themselves from the risk offalling foul of the new Act.As it is likely that assessing the needfor, and implementing, new proceduresor controls will be a lengthy exercise,we recommend that charities reviewthe guidance and begin the process assoon as possible.
Charities Alert Issue 03/2011Tax and VATImproving HMRCguidanceHM Revenue & Customs (HMRC)has recently announced that it isrevamping its charity guidance to makeit more accessible for people who are‘not tax professionals’ and ‘to makeguidance accessible to the whole of thecharity community, from volunteers toprofessionals’.HMRC has undertaken that over thecoming months it will be:exploring how better to engage andinteract with customersassessing and prioritising all existingcharity guidancescoping, developing, designingand piloting some different waysof presenting guidance to see ifcustomers find them more helpfuldeveloping a more detailedtimetable for this worksetting up arrangements to discussspecific topics and issues withcustomers.The announcement notes that thiswill be a large undertaking but, in theinterim, a number of short guideson specific topics will be released tosupport charities.We will of course highlight any newguidance in future Charities Alerts.HMRC BusinessRecords ChecksHMRC has begun a pilot programmeof ‘Business Records Checks’ that willreview both the adequacy and accuracyof business records within the ‘smalland medium enterprise’ (SME) sector.Charities are within the scope of thepilot and so it is likely that some will beassessed.The ‘test and learn’ pilot is runninguntil July and we understand thatno penalties will be charged unlessthere is evidence of deliberate loss ordestruction or complete absence ofbusiness records. Following the pilotperiod, penalties will be imposed forsignificant record keeping failures.If you receive notice that you are tobe included in the pilot, and wouldlike advice regarding this, then pleasecontact Susan Ball in our London office.Employment tax - hottopicsOur Employers Advisory Group hasrecently issued an Alert summarisingcurrent employment tax ‘hot topics’for the charity sector. Issues coveredinclude volunteers’ expenses, theConstruction Industry Scheme (CIS)and termination payments. Employmenttax is an area where costly mistakescan easily be made and we wouldrecommend you review this documentto make sure you are not affected by anyof these issues.Our Employers Advisory Group hasrecently issued an Alert summarisingcurrent employment tax ‘hot topics’ forthe charity sector.VAT - charitybuildings and thechange of useprovisionsHMRC has recently issued Brief05/2011, which deals with changesin use of charity buildings that wereconstructed or purchased on a zeroratedbasis for VAT after 1 March 2011.In order for the building to retain a zerorating, it must fulfil a 10-year period asa ‘qualifying purpose’ building withouta change of use. ‘Qualifying purpose’is use by the charity for non-businesspurpose or for a relevant residentialpurpose.Previously there were two differenttests to consider and two different VATtreatments depending on whether thecharity let the property out, or wascontinuing to use the property itself butnot for a ‘qualifying purpose’.HMRC has now consolidated the VATtreatment so that a single adjustment willapply in all circumstances.A VAT charge will be made based uponthe: amount of VAT that would havebeen chargeable on the originalsupply (or supplies) to the charityhad that building not been zeroratedas a qualifying buildingproportion of the building that isaffected by the change in usenumber of complete monthsthat the building was used for aqualifying purpose.As noted above, these new rulesonly come into effect if the building inquestion is completed or purchasedafter 1 March 2011.A change of use would not occur if thecharity let the building to another charitythat occupies the property and uses itfor a qualifying purpose.Where the building has change of use tobusiness use, which is a taxable use forVAT purposes, some of the VAT chargeabove may be recovered as input VAT.An example of the new rules in practiceis on our website.
Charities Alert Issue 03/2011ScotlandSCIO guidance releasedAs we reported in a previous Charities Alert, the Office ofthe Scottish Charity Regulator (OSCR) published guidanceregarding Scottish Charitable Incorporated Organisations(SCIOs) in late March. The SCIO became an alternative legalform for charities from 1 April this year.The issues covered in the guidance include how to establisha SCIO and the conversion process for existing incorporatedand unincorporated charities, as well as the duties andrequirements of those ‘charged with governance’ of SCIOs.The first SCIO, South Seeds, was granted charitable status on12 April. It will be interesting to see how many other charitiesopt for the new form of entity.Forthcoming eventsCFDG Annual Conference12 May 2011Please come and see us at this year’s Charity FinanceDirectors’ Group Annual Conference at the Queen Elizabeth IIConference Centre. Our stand is in the Whittle Room.ISBA Annual Conference18 & 19 May 2011Please come and see our team at this year’s IndependentSchools’ Bursars Association Annual Conference at the CelticManor Resort, Newport, South Wales. Our stand is #30.The Future of Financial Reportingand the Public Benefit EntityStandard - seminar13 June 2011Following the recent publication of the draft Financial ReportingStandard for Public Benefit Entities, we are running a seminarin conjunction with CFDG on its implications for the sector. Theseminar, which is open to CFDG members only, takes place atour London office on 13 June and places can be booked viathe CFDG website.Pesh Framjee, head of our Not for Profit unit, has also recentlypublished a briefing on the key issues arising from theproposed new standard, available on our website.We hope you find Charities Alert of interest. If you have questions about any of the topics covered,please call Pesh Framjee, Head of Not for Profit, or Sally Kirby, Editor of Charities Alert.Office locations and contactsCheltenham - Mike Hall01242 234421Kent - Ian WeekesMaidstone01622 767676Tunbridge Wells01892 700200London - Pesh Framjee020 7842 7100Midlands - Helen DrewKidderminster01562 60101Walsall01922 725590Manchester - Vicky Szulist0161 214 7500Thames Valley - Alastair Lyon0118 959 7222Crowe Clark Whitehill LLP is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legalentity. Crowe Clark Whitehill LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specificallydisclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member. © 2011 Crowe Clark Whitehill LLPThis information is published without the responsibility on our part for loss occasioned to any person acting or refraining from acting as a result of any information published herein.